DBRS Morningstar Confirms Ratings on Secucor Finance 2013-I DAC

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (sf) rating on the Class A1 and Class A2 Notes (together, the Class A Notes) issued by Secucor Finance 2013-I DAC (the Issuer).

The ratings address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in November 2023.

The confirmations follows an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of charge off and monthly principal payment rate as of the May 2020 payment date;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AA (sf) rating level;
-- No amortisation events have occurred.

Secucor Finance 2013-I DAC is a revolving securitisation of a consumer credit receivables portfolio originated and serviced by Financiera El Corte Inglés E.F.C., S.A. (FECI), the captive finance company of the El Corte Inglés S.A. (ECI) distribution group. FECI acts as the servicer in the transaction, with Santander Consumer Finance S.A. appointed as backup servicer. The receivables represent amortising consumer loans and store charge credit card facilities issued to customers of ECI. The transaction closed in November 2013 and features a revolving period, currently scheduled to end in April 2021. The securitisation uses a cross-border structure whereby the receivables are transferred to the Issuer, an Irish special-purpose vehicle.

PORTFOLIO PERFORMANCE

The portfolio is performing within DBRS Morningstar’s initial expectations. As of the April 2020 cut-off, the monthly principal payment rate and the annualised charge-off rate were as following (both as percentage of the performing principal balance as at the beginning of the reporting period):

-- FCC: 13.70% and 3.01%, respectively
-- FSC: 22.74% and 1.10%, respectively
-- TS9: 105.56% and 2.67%, respectively
-- TSC: 107.45% and 2.07%, respectively

As of the April 2020 cut-off, loans that were two to three months in arrears represented 1.4% of the outstanding portfolio balance, up from 0.6% as of the April 2019 cut-off. As of the same cut-off, the 90+ delinquency ratio was 0.4%, slightly up from 0.3% last year. Finally, the cumulative default ratio (calculated as cumulative defaults divided by the initial portfolio balance plus subsequent portfolios) was 0.2%, stable from last year.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS

DBRS Morningstar conducted a loan-by-loan analysis of the outstanding pool of receivables and maintained its base-case charge-off and monthly payment rate assumptions for each subpool as follows:
-- FCC: monthly principal payment rate and annualised charge-off rate at 14.8% and 7.2%, respectively
-- FSC: monthly principal payment rate and annualised charge-off rate at 21.8% and 1.9%, respectively
-- TS9: monthly principal payment rate and annualised charge-off rate at 93.5% and 7.4%, respectively
-- TSC: monthly principal payment rate and annualised charge-off rate at 95.3% and 2.0%, respectively

CREDIT ENHANCEMENT

As of the May 2020 payment date, credit enhancement to the Class A Notes was 8.0%, down from 31.9% as of the May 2019 payment date. The transaction features dynamic credit enhancement and borrowing base calculations.

Subordination of the Class B Variable Funding Notes, excess spread, and the Class A reserve fund provide actual credit enhancement to the Class A Notes, which is included in the asset factor calculation.

The Class A reserve fund of EUR 9.0 million, equal to 1.5% of the outstanding balance of the Class A Notes, provides liquidity support to the structure and is available to cover senior fees, expenses, and interest shortfalls on the Class A Notes.

BNP Paribas Securities Services, Spanish branch acts as the account bank for the transaction. Based on the private rating of the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Furthermore, Banco Santander SA, Banco Bilbao Vizcaya Argentaria S.A. and CaixaBank S.A. act as the collection account banks for the transaction.

DBRS Morningstar analysed the transaction structure in in its proprietary cash flow engine.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020).

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at:
https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by Deutsche Bank AG, London branch, servicer reports and information provided by FECI, and loan-level data provided by the European DataWarehouse GmbH.

DBRS Morningstar did not rely upon third-party due diligence to conduct its analysis.

At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 30 May 2019, when DBRS Morningstar confirmed its ratings on the Class A Notes at AA (sf).

The lead analyst responsibilities for this transaction have been transferred to Daniele Canestrari.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

-- DBRS Morningstar expected a lifetime base case Charge-Off and Principal Payment Rate for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.

-- The base case Charge-Off and Principal Payment Rates for FCC, FSC, TS9, and TSC products are 7.2%, 1.9%, 7.4%, 2.0% and 14.8%, 21.8%, 93.5%, and 95.3%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected if the Charge-Off and Principal Payment Rates increase or decrease by a certain percentage over the base case assumption. For example, if the Principal Payment Rate decreases by 50%, the ratings of the Class A Notes would be expected to remain at AA (sf), assuming no change in the Charge-Off Rate. If the Charge-Off Rate increases by 50%, the ratings of the Class A Notes would be expected remain at AA (sf), assuming no change in the Principal Payment Rate. Furthermore, if the Principal Payment Rate decreases by 50% and the Charge-Off Rate increases by 50%, the ratings of the Class A Notes would be expected to fall to AA (low) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in Charge-Off Rate, expected ratings of AA (sf)
-- 50% increase in Charge-Off Rate, expected ratings of AA (sf)
-- 25% decrease in Principal Payment Rate, expected ratings of AA (sf)
-- 50% decrease in Principal Payment Rate, expected ratings of AA (sf)
-- 25% decrease in Principal Payment Rate and 25% increase in Charge-Off Rate, expected ratings of AA (sf)
-- 25% decrease in Principal Payment Rate and 50% increase in Charge-Off Rate, expected ratings of AA (sf)
-- 50% decrease in Principal Payment Rate and 25% increase in Charge-Off Rate, expected ratings of AA (sf)
-- 50% decrease in Principal Payment Rate and 50% increase in Charge-Off Rate, expected ratings of AA (low) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Daniele Canestrari, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 5 November 2013

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main – Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Master European Structured Finance Surveillance Methodology (22 April 2020)
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020)
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations
-- Rating European Structured Finance Transactions Methodology (28 February 2020)
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology
-- Interest Rate Stresses for Structured Finance Transactions (10 October 2019)
https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.